Solid Gains in Asia Buoy European Markets

European stock markets mostly higher as USD strengthens. DAX and FTSE 100 are managing gains after a largely positive session in Asia, where robust PMI readings out of Japan and China helped to underpinned sentiment as several markets including China, Hong King, India and South Kore were closed for public holidays. In Europe the stronger USD helped core markets, while the escalation of tensions between Barcelona and Madrid saw the Spanish IBEX selling off and also kept a lid on Italian and French markets, which are swinging between gains and losses. U.S. stock futures are higher, oil prices are down, with WTI trading at USD 50.88 per barrel.

Eurozone Unemployment Unexpectedly Held Steady

Eurozone unemployment unexpectedly held steady at 9.1% in August, against expectations for a slight dip in the headline rate to 9.0%. Cross country divergence remains very high even among the big four and Spain’s 17.1% contrasts sharply with Germany’s 3.6%. Unemployment remains especially high among the under 25s, which highlights the need for further structural reforms, even if today’s PMIs surveys for the manufacturing sector report a further surge in job creation. At the same time wage growth has been limited and today’s weaker than expected headline number will add to the arguments of the doves at the ECB who remain reluctant to commit to and end date for QE just yet.

Rajoy’s decision to suppress a referendum on Catalonia’s independence with the help of police and what looked to many like excessive force, has managed to catapult the tensions between Barcelona and Madrid onto the world stage, and is weighing on the Eurozone markets. The referendum had been declared illegal by the constitutional court, but was pushed through by the regional government against the will of the central administrations.  The referendum may be illegal, but the regional government, equally on confrontation course as Rajoy, remains fully intent on enforcing the result that reportedly saw 90% in favor of Catalonia’s independence, even though it saw only 40% of voters making it to the polls.

The UK’s manufacturing PMI undershot expectations with the September headline coming in at 55.9, correcting after surging in August to a four-month high 56.7 reading, which was itself revised down from 56.9. The median forecast had been for a more modest pullback, to 56.2, though the outcome still remains comfortably above the long-term average of 51.7 after 14 consecutive months above 50.0. The breakdown showed input price inflation lifting to a six-month high, while production and new orders readings came in above long-run averages. Despite the softer headline, the survey found most respondents reporting solid demand in both domestic and export markets. Growth in export orders was near the best in six-and-a-half years, although the boost from post-Brexit vote sterling weakness was reportedly less than earlier in year. Optimism for the year ahead was also high.